Assume a fixed demand for money curve and the Fed increases the money supply. The result is a temporary:
A) excess quantity of money demanded.
B) excess quantity of money supplied.
C) new equilibrium interest rate.
D) decrease in the demand for loans.

Question

Quizplus · Accepted Answer

When the Fed increases the money supply, there will be a temporary excess quantity of money supplied, as there will be an increase in the supply of money without an equivalent increase in the demand for money. This temporary excess will eventually be absorbed as market participants adjust their behavior, resulting in a new equilibrium interest rate. There is no direct effect on the demand for loans.

Assume a Fixed Demand for Money Curve and the Fed